Internal supply chain management in the Chilean sawmill industry

Purpose – The existing business paradigm in the sawmill industry is that improvements are achieved by enhancements at each individual sawmilling plant. We investigate a collaborative approach, and propose a model for optimizing production and inventory planning decisions within a system of plants.

Methodology/Approach – Our methodology models the sawmill production process in terms of two transformation stages and two inventory stages. We then extend the model to account for supply chain decisions consisting of timber transfers among plants. We apply our model at eleven Chilean sawmills to evaluate whether they can benefit from operating in a more integrated manner.

Findings – We find an opportunity to increase profits by more than 15% through a higher utilization of the capacity and a better assignment of production orders.

Research Limitations/Implications – The study neglects the possibility of exchanging raw material among plants. Also, our findings are derived from a computational simulation, so are estimates, not actual observations.

Practical Implications – The study challenged the business paradigm of the company we performed the study for. Now it is implementing the suggested improvements.